Nikkei 225 Forecast: Japan Stocks Eye 60,000 as Inflation Fuels BoJ Rate Bets

The producer price index in Japan rose more than expected in the month of May. The index increased by 0.9% from the previous month, compared with the 0.5% forecast. On the other hand, the producer prices increased by 6.3% yoy in May 2026. This was the fastest annual growth since March 2023.

This strong inflation data indicates that there is still more price pressure going through the economy. This is not a good indication for Nikkei 225 as increased input prices can reduce a firm’s profits when they are unable to raise prices for their products.

The uptick in PPI also adds to the pressure on the Bank of Japan. Inflation is already running above the target of BoJ. But the robust wage growth is another factor for the central bank to look at for tightening measures. If traders begin to factor in a greater probability of a rate hike, Japanese bond yields could rise. Exporters are a key component of the Nikkei 225 and a strong yen could pose a threat to them.

This increases the volatility for the Japanese stocks in the near term. Nikkei 225 could struggle to keep climbing if investors become increasingly concerned about the impact of rising borrowing costs and declining export revenue. But the global AI and semiconductors demand remains strong. If Japanese equities correct further, they may soon find support from the global AI demand and push upside.

Nikkei 225: 60,000 Support May Decide the Next Bullish Move

Nikkei 225 dropped towards the 62,000 zone after breaking the 63,700 level yesterday, as expected in the previous article. The index remains in correction mode and looks for further downside or consolidation below the 66,000 level to find the next bottom. The 62,000 and 60,000 levels remain strong support in Nikkei 225, where the next upside momentum may begin.

This correction in Nikkei 225 started from the 68,000 level. That level was the resistance of the ascending channel as seen in the chart below. This correction has also broken the 63,700 level as the first support. But the index hit the 50-day SMA at 62,000.

A break below this SMA at 62,000 will likely push the Nikkei towards the 60,000 area. This area is considered a strong support. This support has the intersection of the ascending channel pattern and the horizontal line from the April highs.

Therefore, a break below 60,000 will likely push the Nikkei further down towards the 55,000 level. The RSI is further consolidating below the mid-level, which further highlights the possibility of downside in Nikkei 225.

Despite this correction, the overall trend remains bullish, and this correction will offer buying opportunities in the Japanese stocks.

Bottom Line

The Nikkei 225 is currently facing short-term downside risks as rising producer prices drive worries regarding inflation, BoJ rate hike and yen strength. These factors may keep Japanese stocks volatile and capped for the upside. Technically, the index is also looking for a strong bottom. The first area of support is 62,000. A break below 62,000 will push the index to 60,000, which is the key area of support for the next move. A break below 60,000 would continue the correction into 55,000, but the trend is positive overall. This pullback could be a new buying opportunity for Japanese stocks as the demand for Japanese stocks remains high.

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